The IRS has announced a significant taxpayer-friendly change that will eliminate the need for many taxpayers to request first-time penalty relief.

Beginning this summer, the IRS will implement a new Automatic Exemption from Penalty (AEP) program that will automatically waive eligible failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a strong history of tax compliance.

For many years, taxpayers seeking first-time penalty relief had to specifically request First-Time Abatement (FTA)—a little-known administrative program buried in the IRS Internal Revenue Manual. As a result, many eligible taxpayers never received relief simply because they were unaware of the program or did not know to ask.

Under the new AEP program, the IRS will automatically determine eligibility and grant relief without requiring a separate request.

A taxpayer generally qualifies if they have:
• Timely filed all required returns during the previous three tax years (or 12 consecutive quarters for quarterly filers); and
• Timely paid, or properly arranged to pay, any tax due during that period.

If eligible, the IRS will automatically waive applicable penalties and issue a notice confirming the relief.

The new program applies to:
• Original 2025 individual and business tax returns
• 2026 quarterly employment and excise tax returns
• Future returns going forward

Beginning with returns due on or after January 1, 2027, AEP will fully replace the traditional First-Time Abatement process for eligible returns.

During the rollout, some eligible taxpayers may still receive penalty notices for 2025 returns or 2026 quarterly filings. If that occurs, taxpayers should contact the IRS and request traditional First-Time Abatement until the automatic system is fully implemented.

This is one of the most meaningful taxpayer service improvements announced by the IRS in recent years. The National Taxpayer Advocate estimates that while approximately 220,000 taxpayers received first-time penalty relief through the manual process in fiscal year 2025, more than 1.5 million taxpayers would have benefited had the automatic system been in place.

Taxpayers who do not qualify for AEP may still request penalty relief under the existing reasonable cause provisions.